JP Morgan neutral on Aztecsoft

April 19, 2008

Revenues grew 8% Q/Q in US$ terms with a 4.6% Q/Q increase in EBITDA margins from a low base in 3Q FY08. However, Aztecsoft reported a foreign exchange loss of Rs42MM during the quarter leading to net profit of Rs32MM, below our expectations.

Management indicated a 25-28% Y/Y US$ revenue growth in FY09 led by a strong rampup in newly added clients. JP Morgan revenue estimates in line with management guidance, and now expect a 25% revenue CAGR over FY08-FY10E as against 30% earlier.On margins, expect better EBITDA margins of 14-15% leading to an EPS CAGR of 32% over FY08-FY10E (an increase of 8-9% in FY09/FY10E).

JPM has set a DCF-based Dec-08 price target at Rs70. Aztecsoft Tech is expected to report an EPS of Rs 6.6 in FY2009.